SEARCH
On Twitter...
Connect With Us…
Economist: The Corruption Eruption
Posted in: Anti-Corruption, Blog, In The News by Marco Puccia on May 3, 2010
A great article called “The Corruption Eruption” was published in The Economist over the weekend. The article hit on the rising attention around corporate corruption and makes the argument that combating corruption within your organization is not just an ethical issue — it makes strong business sense as well.
The ethical case against corruption is too obvious to need spelling out. But many companies still believe that, in this respect at least, there is a regrettable tension between the dictates of ethics and the logic of business.
False: Bribery Is the Price You Must Pay To Ender Some of the World’s Most Difficult Markets
The article cites the examples of Reebok, Google, Novo Nordisk, and IKEA as Western companies that have successfully prospered in emerging markets without engaging in corruption. In fact, “IKEA has gone to great lengths to fight corruption in Russia, including threatening to halt its expansion in the country, firing managers who pay bribes and buying generators to get around grasping officials holding up grid connections.”
“What is more, Mr Nichols argues, it is misguided to dismiss entire countries as corrupt. Even the greasiest-palmed places are in fact ambivalent about corruption: they invariably have laws against it and frequently produce politicians who campaign against it. Multinationals should help bolster the rules of the game rather than pandering to the most unscrupulous players.”
False: Bribery Can Speed Up The Otherwise Glacial Pace of Bureaucracy
According to a World Bank study by Daniel Kaufmann and Shang-Jin Wei, companies that pay bribes actually end up spending more time negotiating with bureaucrats. Furthermore, the cost of borrowing tends to be much higher for corrupt companies because of regulatory fluctuation.
In fact, standing up against corruption can help speed things along for your organization! The article cites Texaco as a great example of this:
“Texaco, and oil giant now subsumed by Chevron, had such an incorruptible reputation that African border guards were said to wave its jeeps through without engaging in the ritual shakedown”
The Hidden Costs of Corruption
1.) Slippery Slope - Once you give into corruption the first time, more solicitations will invariably follow. Word will quickly spread to others that you are willing to “pay”, and the ingenuity of bribe-takers will quickly come up with new ways to solicit payments. Many corrupt businesses and organizations open themselves up to blackmail.
2.) The Psychological Toll – The article cites Philip Nichols of the Wharton School explaining that “corrupt business people habitually compare their habit to having an affair: no sooner have you given in to temptation than you are trapped in a world of secrecy and guilt.”
Increased Visibility, Legal Pressure Being Applied
With increased methods for rapid and anonymous communication (Blogging, Twitter, E-mail, etc.), more public pressure is being applied to companies and organizations to act in an ethical manner. Corruption is much more difficult to hide these days, and the likelihood of getting caught is much higher today than even just 5-10 years ago.
Legal pressure on pursuing cases of corruption is also on the rise. Legislation such as the Foreign Corrupt Practices Act (FCPA) and Britain’s Bribery Act has been revamped with stricter authorities and increased attention. Legislation has been left open to interpretation, allowing prosecutors to pursue even less-blatant cases of corruption (eg. lavish entertainment). Under the legislation, senior managers can be held personally liable for corruption on their watch — risking both massive fines and prison time.
The Department of Justice is actively pursing 150 FCPA-related cases today, as opposed to only 8 in 2001. 38 countries have signed onto the OECD’s 1997 anti-corruption convention (opening the door for cross-border prosecutions). Several high-profile cases including Britain’s BAE Systems being fined $140m, Daimler paying out $184m in fines, and Seimens being fined $1.6 billion has set a new tone in the fight against corruption.
The Next Steps…
According to a survey of 500 prominent firms by Transparency International, the average company only scored 17 out of a possible 50 points on “anti-corruption practices”. The article reads:
Companies need to develop explicit codes of conduct on corruption, train their staff to handle demands for pay-offs and back them up when they refuse them.
Explicitly standing up against corruption through your organization is not just a piece of “Corporate Social Responsibility” or ethical standards. It can literally strengthen your organization and ability to conduct business in the market you are trying to reach!
